For a trader, the biggest enemy is you. Yes, yourself.
Trading is an emotional game. Traders are constantly overwhelmed by two powerful emotions: Greed and fear.
Because of these emotional overreactions by greed and fear, 95% of the traders lose money.
That is a good thing.
Trading is Simple
There are a ton of ‘indicators’ and trading ‘techniques’ you can read about trading. They are both ‘correct’ and useless at the same time. Because there is not one way to make money by trading. There are a million ways to trade successfully, as long as you trade without emotions, but with discipline.If you are to learn only one thing about trading, this is the lesson you should remember.
How to Be Disciplined?
Many traders spend a lot of time researching various indicators, news and even ‘fundamentals’ of the instrument they are about to trade before taking the action. That is good. I am confident that most rational behind their trades are valid and ‘correct.’ But why do most people lose money?They second-guess themselves after getting into a trade.Let’s look at this example:
BTC July 15th 1-day chart
On July 15th, 2018, looking at the 1-day chart of BTC (indicated by the circle), when BTC broke above $6,401, you decided it was a great buying opportunity (will explain why in later lessons). That is indeed a good decision.
(When you use a day chart like the one above, your trading timeline should be 2–5 days. That means you stay in the trade for 2–5 days.)
But Here Come the Troubles
Let’s imagine this: You have just put $5,000 in BTC long (buying). You are supposed to ignore everything else, do not look at the BTC price for at least ONE day. That is right, do NOT look at the chart for at least 24 hours. Don’t even listen to the price update of BTC for 24 hours! Go out with your family, your girlfriend/boyfriend. Go have a drink, to a movie, a one-day break at the beach, or have a party. Do anything but looking at the BTC chart.
But you did.
You started looking at the different indicators, listening to what your friends were saying about who-and-who expert is saying about BTC on TV, etc. You now look at the different charts:
BTC July 15th 12-hour char
Maybe an hourly chart, or in this case, a half-day chart.
Indicated by the circle and the arrow. For hours, you look at this chart. You are agonized by it. It is going down on this half-day chart!
You started second-guessing your initial decision. After a few hours, “Oh F**k!, I’m losing my f**king money!” You hit a panic button and got out of the position.
And of course, BTC took off the next day and went up almost $2,000 in the next few days.
Once again, you lost some money and missed a LOT of money on the way up, even if you had initially made a brilliant call (of BTC going up).
What Went Wrong?
You. Your emotions, your mental strength, your lack of discipline, and inexperience.You second-guessed your otherwise great initial decision.
How to Improve?
Just like the best athletes in the world have coaches, without an exception, you need a good coach too. Practice makes perfection, but trading practice with real money is a super expensive way of learning. Coupled with the extreme stress of emotions, many people don’t learn or improve, and are doing the wrong things over and over again, for years.
Another way to improve your trading results is to use a proven trading system. I am talking about a complete trading system, not just some ‘buying strategies’ you have heard all the time.
More to come in the future lessons.
Previous Lesson： Trading Basics Everyone Should Know (#1): The Log Scale
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*Disclaimer: This is not a recommendation to invest, nor can this be considered an investment advisory service. No money changes hands that will benefit IOB as a result of this post. Full disclosure: We long BTC and ETH at the time of the publication.
Originally published at iob.vc on August 4, 2018.